Section A: Context and Introduction

1. Introduction

1. The devolution of social security to Scotland is an integral
part of the Scottish Government's wider constitutional reform
agenda following the Scotland Act 2016.

1.1. In March 2016 the Scottish Government announced that: "The
social security system in Scotland can be seen to have a number of
levels of delivery. This ranges from the governance of the entire
system, the back room delivery functions which will process
applications and arrange for payments to be made
etc. to the user interface where
customers will interact with the system. This system is in the
process of being appraised over two stages."

1.2. A report was published
[2] on our initial high level appraisal around the governance of
social security in Scotland and the strategic case for change. It
found that the governance body should have close links to Scottish
Ministers and be flexible enough to respond as the social security
landscape in Scotland unfolds.

1.3. Flexibility means having the capacity to expand and take on
new work as well as being able to continually improve. A central
agency with access to the wider resources of the Scottish
Government family was seen as being able to deliver this
flexibility. Minsters therefore decided that social security in
Scotland should still sit within the Scottish Government family in
order that it might be able to draw upon the strengths and
resources of the parent organisation, when needed.

1.4. The work leading to this point, although not formally
written up as such, was the process by which a case for change was
initially made. It forms, along with the wider political debate and
narrative around further devolution following the Independence
Referendum, the Strategic Outline Business (
SOBC)
case for social security delivery in Scotland.

1.5. Subsequently, work was undertaken to formally examine the
potential options for delivery of social security in Scotland
within the context of the decision to do so in the form of an
agency. Work undertaken to extend the initial options appraisal
into this second stage forms the bulk of the Socio-Economic Case
and Financial case of this
OBC.

1.1 The nature of this document

1.6. The nature of social security delivery is complex and is
very different to a standard government investment project,
particularly those of a capital nature. Whilst this
OBC follows
HMT guidance on
the construction of business cases
[3] it does so in a way that is consistent with the wider
approach taken across Scottish Government that extends the narrow
focus of the economic case under
HMT guidance to
consider the wider socio-economic impacts.

1.7. The form and structure of this
OBC is driven by
these factors. An initial section (Section A) discusses the context
of the work and the approach undertaken.

1.8. Social security delivery within an agency could take many
forms.
Section
B of this document details the process that was followed to
develop the six options that are initially examined in this
OBC. These options
are primarily about how delivery takes place and who or what
undertakes different components. The options are defined from the
"bottom-up" in terms of the activities that a social security
delivery system needs to undertake.

1.9. Section C applies the five cases approach. It examines the
Socio-Economic and
Financial Cases for the six options. An overview of the recognised
Programme and Project Management (
PPM)
methodology being used and governance structures is covered in the
Management Case. It also revisits the
Strategic case as discussed above and updates the position to take
account of recent developments. Not least amongst this is the
consultation on Social Security undertaken in 2016, the results of
which are published as "A New Future for Social Security in
Scotland".

1.10. The six options, crucially, represent a wide spectrum of
possible delivery options. Each option would require very different
contracting and procurement process and indeed would require
significantly different organisational structures to deal with
commercial aspects and interactions with other organisations. This
means that the
Commercial case developed in Section C is more about exploring these
issues than providing detailed information on the specific way in
which delivery would be taken forward.

1.11. Drawing together the evidence across the five cases leads
to the creation of three hybrid options in
Section
D that represent the best combination of components of the
options in terms of their ability to deliver against outcomes and
their financial implications. These hybrids are assessed and this
leads to the choice of a preferred option that forms the
recommendation of this
OBC.

1.12. In terms of the Financial case, it is important to note
that the costs of administering these benefits refers to the staff,
non-staff resources and infrastructure costs which will be needed
under each option on an on-going basis, it does not include the
amount paid out to those in receipt of benefits. The Fiscal
Framework (detailed in the Strategic case in Section 3.12) between
the
UKG and
SG makes provision
for this money (based on equivalent
DWP
expenditure) to be transferred to Scotland. There are financial
implications if the
SG alter the nature
of the benefits being transferred, top-up existing benefits or
create new ones but these are future policy decisions that are not
considered in this
OBC.

1.13. Nor does this
OBC examine
changes in delivery policy from the current system. It is very
clear that changes to this, specifically around the nature and
frequency of assessments will have large impacts on the on-going
costs and the expenditure on benefits. These decisions have not yet
been made and are thus not considered at this point. However,
within the Financial case, sensitivity analysis is undertaken on
likely policy variation to ensure that such variation would not
lead to different choices between the delivery options.

1.2 The scale of the delivery challenge

1.14. Expenditure on benefits in Scotland in 2015/16 was
£18.3bn, 9.1% of the
GB total. Of this 15.3% or
slightly less than £3bn is to be devolved. See Figure 1
below.

Figure 1 - Total Benefit expenditure in Scotland
2015/16

1.15. Expenditure on benefits to help disabled people with the
additional costs that they face, namely Disability Living Allowance
(
DLA) and
Personal Independence Payment (
PIP) and
Attendance Allowance represent around 2/3rds of the expenditure.
See Figure 2 below.

Figure 2 - Breakdown of benefit expenditure in Scotland
2015/16 on benefits to be devolved

1.16. The variation in size of the benefits to be devolved is
significant as is their complexity. Most are not primarily
dependent on income but on an individual's circumstances and
health.

1.17. Administration of these social security benefits in
Scotland is currently provided by the Department for Work and
Pensions (
DWP).
Section
B of the stage 2 options appraisal looks to estimate the costs
of six options for providing this function out with
DWP.

1.18. These are:

Option 1 - The agency centrally delivers social security in
Scotland;

Option 2 - The agency delivers social security in Scotland
through local offices;

Option 5 - The agency provides governance but delivery of
social security is done by others
e.g. via procurement or a
Service Level Agreement (
SLA) and

Option 6 - The agency provides governance but delivery is
embedded in a range of existing public services.

1.19. These options can be thought of as representing somewhat
stylised views of the possible delivery landscape. See section 1.4
for an initial discussion and
section
2 for a full elaboration. The following parts of this section
provide wider context on the environment under which this
OBC has been
undertaken.

1.3 Link between Outline Business Cases and Options
appraisal

1.20. This document is written as a formal
OBC but it also
provides a record of the Stage 2 appraisal of options for social
security delivery in Scotland. The approach is based on
HMT's Green
Book.

1.21. The appropriate form for an options appraisal under the
approach common in Scotland is a neutral document that provides the
evidence base for decision making but does not itself make the
decision. For other examples, relating to appraisal see Scottish
Transport Appraisal Guidance
[4] and more widely, Housing Need and Demand Guidance
[5]. This is detailed in
Section
C of this document under the headings of the five case
OBC model but
Section
C specifically and deliberately does not impose value
judgements or reach a decision. As such, Section C of this
OBC is similar to
separate options appraisals conducted elsewhere in Scottish
Government.
Section
D carries this process forward in order to arrive at a
preferred option.

The completion of a study, as documented in a final report,
allows the rationale behind a potential transport options to be
presented in a clear, evidence-led manner and provides the
information required by a decision maker to make an informed choice
of the most appropriate options for design development.
STAG
Technical Database Section 1.1

The
HNDA
should be factual in scope and bring together the evidence upon
which subsequent housing policy and planning policy decisions and
interpretations should be based.
HNDA
Managers Guide Section 8.1

1.22. The standard approach within options appraisal is to
compare options for an intervention against a base case when no
action is taken. This is referred to as a "Do-nothing" or a
"Do-minimum" option. For social security this is assumed to be
DWP
continuing to deliver all benefits in Scotland. Convention dictates
that this is referred to as option 0 but this should not be taken
to imply that it is actively being considered as an option. This
option is the basis of the cost model detailed in
Section
C. However, this option is not practically viable as it both
counters the point of devolution and
DWP
would be unable to deliver it (and allow for any changes from the
current system). As such its prime purpose is as a comparator on
the costs (and the basis by which the costs of the options are
assessed).

1.23. The nature of social security and specifically the
determination of the form of the delivery of social security means
that a standard cost-benefit approach is not sufficient to provide
the information that is required to choose between options. This is
demonstrated at the start of the Socio-Economic case - a standard
Cost-Benefit analysis of the options is undertaken but is not
helpful in assessing the characteristics of the systems (other than
cost) that vary between the options. Instead, a multi-criteria
approach (
MCA) has been
adopted to provide a broad spread of evidence to inform the
socio-economic case. This includes drawing on submissions to the
social security in Scotland consultation that ran from August to
October 2016
[6] as well as a number of workshops with internal and external
experts. The criteria used in the multi criteria analysis are shown
in Figure 3 below and fully discussed in
Section
C.

Figure 3 - Criteria used in
MCA

1.24. Note that each criteria has a number of sub-criteria.
There is no weighting given to the criteria. Instead, the multi
criteria analysis provides information on the benefits of the
options against the range of criteria and, in a similar manner to
Transport or Housing, it is down to the person making the decision
to weigh the importance of that evidence against the associated
costs.

1.25. The focus of the Financial case is to provide a steady
state estimate of these costs. This is the typical annual cost for
the social security system to operate normally. This normal
operation would be characterised by each benefit having relatively
small and smooth changes in numbers of people accessing them and
administration costs year to year, although some degree of on-going
change will be a part of the steady state social security system.
Currently, two of the main benefits being devolved (Disability
Living Allowance (
DLA) and
Personal Independence Payment (
PIP)) are
not in steady state, owing to the current transition of working age
DLA
claimants to
PIP. Due
to limitations on caseload forecast data, it is not possible to
accurately predict long-term costs in, say, 2030. Therefore a
simplification is made; administration costs are provided for
2020/21, on the basis that this is close to being in steady state.
This relies on the assumption that all cases will have migrated
from adult
DLA to
PIP.

1.26. In line with standard practice, the costs of each option
are fixed in 2014-15 prices (based on the latest data available).
This assumes that costs are constant in real terms. The Financial
case then makes realistic and sensible assumptions about how
caseload might vary in the future, based on demographics and
projects the steady state costs forward. It also makes some basic
assumptions about implementation costs, specifically regarding
Information Technology. These are combined in a standard way to
provide a measure of the long-term discounted cost of the system
that would be found in any standard
OBC. This is
followed by a section that examines appropriate levels of optimism
bias (
OB) in terms of
implementation costs.

1.4 Scale, approach to options and challenge

1.27. The scale of this options appraisal is unprecedented in
Scotland in recent history. By way of comparison, an options
appraisal was undertaken for the Forth Replacement Crossing (
FRC) as part
of a wider Transport Strategic Projects Review in 2006-7
[7]. The final three reports are broadly equivalent to the
material in this
OBC and run to
several thousand pages. Like the
FRC work this
OBC provides full
detail of the analysis and thinking that will inform any
decision.

1.28. The total cost of the
FRC project,
which was estimated to be between £1.325 billion to
£1.350 billion as of winter 2015 is slightly less than half
what the annual expenditure on social security will be in Scotland
even if the administration and (initial) implementation costs are
excluded. Whilst there are large differences between the operation
of a social security system and the construction of an estuary
crossing, the scale and importance of the decision over the form of
the social security system in Scotland is clear.

1.29. Another way of thinking of the choice of options is that
it provides the information necessary to answer a series of
questions, each of which have two possible answers and some of
which have follow-ups. Once these questions have been answered the
form of the agency will become clear. These questions are:

Should the social security agency administer / govern the
administration of
all devolved social security benefits in
Scotland?

Should social security in Scotland make some provision for
face-to-face contact (through local offices) in addition to that
which would be provided for assessment and how is it best to
provide this?
If yes, should it be part of the agency or be in
partnership with local authorities?

Should we, as much as possible, aim to deliver social
security through already available public sector services and
organisations?
If so, should it be local authorities or other public
sector organisations?
Should any aspect of social security be delivered by
others such as the third or private sector?

Should the agency deliver social security assessments for
disability related benefits itself or work with others?
If others, should it be private/third sector or public?.
If public should it be local authorities or other existing
public services?

Should the social security agency in Scotland be responsible
for providing benefits in cash only or offer a choice of cash and
non-cash options (
e.g., discount cards, energy
discounts, physical goods)?

1.30. And also a question in more general terms:

How best can we harness digital services for social security
delivery in Scotland?

1.31. There are therefore five questions plus five sub-questions
plus the consideration of digital which the options in this
OBC aim to answer.
To answer each question in a traditional manner by constructing all
possible options would require a matrix of 2
[10] or 1024 options plus consideration to digital services. This
would clearly be impractical. The approach taken of using the six
options that are detailed in
Section
B allows these questions to be considered in a framework that
is manageable. Note that these answers require an assessment of the
benefits as well as the costs.

1.5 The five cases model and the choice of the preferred
option for social security

1.32. The standard approach to government business case
development follows the Five Case Model:

Make a robust case for change - the 'strategic case';

Optimise Value For Money in terms of economic, social and
environmental benefit - the 'socio-economic case';

Be commercially viable - the 'commercial case';

Be financially viable - the 'financial case' and

Be achievable - the 'management case'.

1.33.
Section
C of this document presents the current five cases for the
social security agency. The complexity of the options means that
the choice of the preferred option is a more complicated process
than for many other projects or programmes.

1.34. Following
Section
C,
Section
D considers the merits of each of the six options in line with
their respective costs. To account for the complexity of the
system,
Section
D then constructs hybrid options based on the Socio-Economic
and Financial cases that can best deliver the outcomes discussed in
the Strategic case.

1.35. These hybrids are subjected to further analysis and a
preferred option established as the conclusion of this outline
business case.